Fed’s Kashkari Confident Inflation Could Weaken But Not Without Pain

Neel Kashkari

Anjali Sundaram | CNBC

Minneapolis Federal Reserve president Neel Kashkari said Monday that he is confident inflation will return to normal, although it may be taking longer than he expected.

Acknowledging that he was on “transient team” in the belief that rising prices wouldn’t last, he said lingering supply-demand imbalances have fueled the highest levels of inflation in more than 40 years.

While the Fed’s monetary policy tools can help reduce demand, they can’t do much to maintain supply.

“I am confident that we will bring inflation back to our target of 2%,” he told CNBC’s “Squawk Box” in a live interview. “But I’m not sure yet how much of that burden we’ll have to bear compared to getting help from the supply side.”

His comments come less than a week after the Federal Open Market Committee raised interest rates by half a percentage point. The 50 basis point increase was the largest increase in 22 years and sets the stage for a series of similarly sized moves in the coming months.

While Kashkari has historically favored lower rates and looser monetary policy, this year he voted for the two hikes needed to contain rising prices. He notes, however, that the burden of a tightened policy will fall on those at the lower end of the wage spectrum.

“It is the lowest-income Americans who are being punished the most by these rising prices, and yet your policy tools to curb inflation have the most direct effect on those lowest-income Americans, either by increasing the cost of a ​mortgage … or if we have to do so much that the economy would go into recession,” he said. “It’s their jobs that are probably at stake.”

“So this is a tough challenge I think for all of us, but we also know it’s not good for anyone to keep inflation at this very high level and it’s not good for the economy in the long run for potentially everyone.” across income distribution,” he added.

The government will release the latest consumer price figures on Wednesday, followed by April’s producer prices on Thursday.

Economists expect the inflation rate to have slowed slightly in April, with the general consumer price index likely to rise 8.1% over the past year and 6% excluding food and energy, according to Dow Jones estimates. That compares with March’s climbs of 8.5% and 6.5% respectively.

Those kinds of numbers offer some comfort to Kashkari, though he said conditions remain challenging as long as supply-demand imbalances persist.

“We just have to keep an eye on the data,” he said. “Some of the more recent inflation data is a little softer than we thought it would come in by some measures. So there may be some indications that things are starting to soften a bit. But we just need to keep paying attention to the data and see where it goes.” before we can draw any conclusions.”

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